Daily Dupaco

Thursday, November 10, 2016

Baby on board: Saving for baby's future

Raising kids is a costly proposition. And saving for their future can be a challenge.

But there are steps you can take to reach your goals. The most important thing is to start planning today, says Tami Rechtenbach, vice president of member services and training at Dupaco Community Credit Union.

“Expenses for your children don’t just happen when they go to college. They happen in elementary school or high school when they want to join a club team or play a band instrument,” says Rechtenbach, who’s also a mother. “You have to plan to be ready, because these expenses happen sooner than you think they will.”

Get real with your spending

Saving for your child’s future starts by looking at your budget today. Find places where you can cut unnecessary expenses—maybe it’s that daily coffee—that can be used as savings for the baby. Rechtenbach says everyone can find $5 a week in the budget to save instead of spend.

That budget can be tight for young families, who are now also paying for diapers, baby gear and possibly childcare. But a free Dupaco Money Makeover might help you uncover savings opportunities.

“They need to take a real hard look at what they’re spending and where they’re spending now, because they’re going to blink and their child is going to be heading to college,” she says.

Start small—and keep building

Even if you’re systematically and automatically saving just $5 a week, it will help you get into the habit of saving. As you learn to live without those dollars, you can continue to increase the amount you save.

Rechtenbach is a fan of saving through payroll deduction, but you also can take advantage of your credit union’s automatic transfers.

“Payroll deduction is the best way, because you get used to what’s coming into your paycheck and forget about the rest,” she says.

Choose a savings account that works for your family

It’s important to structure savings for your child so that the funds will be protected.

Consider starting with an UTMA, or Uniform Transfer to Minors Act, account, Rechtenbach says. An UTMA account is used to hold and protect assets for minors until they’re old enough to manage the money themselves.

When children are old enough to understand what they’re signing, parents should consider opening a separate savings account in their children’s name so they can practice spending and saving.

“That one becomes a teaching tool for the parents,” Rechtenbach says. “But I would caution parents that once you put a child on an account, the child can access that money. You’ve got to think about what you’re OK with your child being able to withdraw—with or without you there.”

Invest that child tax credit

Many families can take advantage of the child tax credit, which can reduce your tax bill by up to $1,000 per child. Imagine how much more you could save for your child if you put that credit, or a portion of it, toward a 529 college savings plan for your child.

“When my daughter was younger, that tax credit went straight into a 529 plan for her,” Rechtenbach says. “We were really happy we had that money when it was time for her to go to college.”

Hone your thriftiness

It doesn’t take long for children to start asking for toys and other wants. It’s important to keep fine-tuning—and sticking to—your budget as your children grow. Teach them how to save and shop for their toys on a budget too.

“I think about how much more money I could have put away for my child’s future that I ended up spending on little toys that ended up in the backseat of the car,” Rechtenbach says.